Maintaining a healthy credit record can be a difficult, yet serious task. What you purchase or invest in can improve or damage your credit record. If your record falls into the latter category, going on to bankruptcy court may be the answer for you.
The average consumer was hailed savior of America ’s economic slump that was experienced soon after Sept. 11, 2001, as people everywhere were encouraged to put money back into the economy. Now, as the economy is improving, many of those people are now dealing with the consequences of their over-zealous shopping. Americans are becoming more concerned about their financial fate now more than ever, and with good reason. There are a couple of choices when it comes to clearing your name of unwanted debt: debt consolidation services, or filing for bankruptcy and going through court.
Debt consolidation is a smart choice for those whose level of unsecured debt is feasibly reducible. A debt consolidation program is designed to combine your outstanding bills into one affordable monthly payment that can eventually lower your bills by as much as 60 percent. This not only does away with pointless minimum payments, but it also gets the creditors off your back. No more nasty phone calls!
Bankruptcy court, on the other hand, has its own advantages and disadvantages when compared to debt consolidation. For those over their heads in debt, bankruptcy may be the only way out because of its ability to actually eliminate debt rather than just reduce it. This legal process allows individuals who are unable to pay their bills and other debts to have some or all of their debts dismissed or sorted out. This may be necessary for individuals who are unemployed, or for people who are drowning in excessive medical bills or consumer debt.
The repercussions for bankruptcies are not light, however, and going to bankruptcy court is anything but fun. First, you must file a petition for the court. A trustee, or a person who will be taking care of your case and your creditors, is then appointed to you. Creditors are prevented from seizing your assets and your bank accounts. Most of all, bankruptcy can remain on one’s credit report for up to ten years. During that time, yards of red tape strictly regulate what you are allowed to purchase. Likely your expenses will be regulated to the bare necessities, preventing you from making investments such as a home or a car.
There are two types of bankruptcies to choose from: Chapter 7, commonly known as “straight bankruptcy,” and Chapter 13, or “reorganization bankruptcy.” The more common of the two is Chapter 7 because its purpose is to liquidate all debts, by both using the debtors existing assets and by discharging those debts that cannot be paid even after assets have been considered. Don’t be fooled, though — even in Chapter 7, some items can be non-dischargeable and must be paid off by the debtor. These include child support, student loans, and taxes.
There are different types of assets and debts. Exempt assets are those the debtor is allowing to keep after the bankruptcy court proceeding. Equities in a person’s home or vehicle, some clothing, and a small amount of other personal items are considered exempt property. Everything else is considered non-exempt and will be collected and sold. A secured debt is when the creditor holds a part of some of the debtor’s property until the debt is paid. Secured debts will get paid off before non-secured debts, which will be the last to be paid.
When a debtor wants to pay off his or her debts within a period of three to five years, he or she will file for Chapter 13. This proceeding is good for those who have a fixed income and are able to put aside some of their money towards paying towards their debts over a period of time. However, one must still go through similar court proceedings, which include declaration of one’s assets and liabilities, a confirmation test that compares the amount creditors will get back and makes sure that the creditor would get at least the same amount if the debtor was filing for Chapter 7. The debtor may also give up some of his or her secured property to the creditor as part of the plan if he or she has fallen behind on payments.